Poemander

On the surface, borrowing is indistinct from rent. Both imply to take and give back. Indeed the word rent derives it's meaning from 'render', which is to provide or give back. The word 'borrow', however, alludes to some different perspective: just consider, coming from Proto-Indo-European and reflected in old Slavonic 'brego', the root 'bhergh' has the ultimate meaning of 'protect', 'guard' and 'safe-keep'. Not surprisingly, the words 'bury', 'burrow', 'harbor' and 'borrow' are all of the same origin. And while there is some semantical consistency about the word 'rent', the word 'borrow' seems to have deviated or even reversed the original meaning: “who is protecting whom?”, we naturally ask ourselves.

If the matter is about the safekeeping of a borrowed item, does it not appear that the borrower is the one providing the service, just the way bank provides customers with the safety box and ought to be rewarded for the service? It could be, however, that the more appropriate concept in such situation would be a deposit. The word 'borrow' traditionally implies that a borrower is asking a lender and not the other way round, i.e, natural question would sound like, “can I borrow your xyz?” rather than, “will you borrow my xyz? It's becoming now clearer that the distinction here is based on matters of need: who has what and who needs what. A lender has the item and a borrower has the need. But does the bank really need depositor's funds? The distinction is vast, the distinction is usage.

Can a borrower or a deposit-taker generate “use” from the item? If not, than it is a safe-keeping or a custody, if yes than it is in fact a rent. In this context, you can't change the word 'usage' for the word 'benefit' because benefit is very subjective; that's what brought us in this semantic mess to begin with. But shall we not get tied up in this epistemological nonsense.

Rent is straightforward, rent is usage and usage is consumption. In the grand scheme of things, private ownership is a legitimized usurpation of rent: every resource or product is 'rented' in order to be used for its deemed purpose and 'returned back' in condition commensurate to its age at the end of rent period, i.e. when rent payments have ceased. If you 'own' a house your rent payment is the original purchase price and the ongoing maintenance (up-keeping) costs, once these have expired, the house disintegrates (literally or metaphorically) returning materials and the land back to nature 'in condition commensurate to their age'. Of course, land remains land, and your “ownership” over it never seems to expire, hypothetically, but this is where the trick is: land, if not for the sophistry of language, isn't meant to be owned, but to be looked after, in a custodian way.

Now, coming back to our “deemed purpose”, do we not see that this is indeed a crux and a point of distinction? Ownership, thus far, makes this 'deemed purpose' pretty much obsolete, implying, among others, the right to destroy if desired so. Again, in the grand scheme of things, nothing truly perishes, and only changes form, yet from the moral perspective, the idea of ownership supplies this corruptive power to decide someone or something-else's fate, which clearly does not resonate the same way with the concept of rent. The idea of a legitimised ownership has opened up a moral division, like a rift in a landmass, separating further and further the absurdity of this dogma from the designs and laws of nature.

All rent is consumption, all purchases is a form of advance rent on consumption – the need meets the settlement. You rent the time and the skill of a hairdresser as you consume the service, pay now, during or immediately after. Debt is past consumption and future settlement, investment is past settlement future consumption (you, your children or beneficiaries will ultimately consume the investment). Debt is besieged with waiting, thus is the jitter, the uncertainty and the ingrained subjectivity of measurement. Benefit, obligation, debt: all became the reverse type of psychology interlaced with morale, religious subordination and the reliance on arbitration from the authority. It breaks down even further: a borrower appears to be the one 'in need' or a 'debit' from the standpoint of moral accounting. A lender, on the other hand, can afford 'not to need' the item at least for a time being and thus can be viewed as in surplus or be a 'credit'. Interestingly enough, the word 'loan' and 'lend' can be traced back to Old English 'laen', meaning a gift, thus reinforcing the lender's original premise of ownership with powers of generosity over the borrower's position of need. Rent has no generosity, no begging.

From here on things begin to hastily disintegrate: first moral accounting justifies the fictional schism and inevitably follows with the proposal of building a bridge made to support all sort of private and/or commercial arrangements. It, somehow, never seemed strange that this bridge would be built of the same material which failed miserably many times before and wasn't fit to bridging anything but expectations and despair. Nevertheless, such oxymoron is real and has a respectable name, it is called “interest”. We all are so used to it that we have taken it for granted. We have even been provided with the economics of incomprehensible abracadabra explaining how the interest is actually a rent on money. It is not, by the way, interest is a fee on fear, that's what it is, but it doesn't have to be this way.

Monetary interest has exhausted its potential, believe it or not. We, ladies and gentlemen, are here touching the artefact; in a few generations or so, interest will be on museum's display. I am no revolutionary, I am simply stating the obvious: interest is cumbersome, counterproductive and archaic. Despite being inherently subjective and unreliable as a measure it is built into financial modelling . As such, interest and the associated instruments are weighting heavily on international trade, skewing the balance of power towards the selected few while singlehandedly destroying every meaningful attempt to humanitarian progress.

Let me outline the following 3 criticisms:

1. Interest is more of a moral dilemma than an economical axiom.

Throughout history interest played a role of 'surety' where the lack of trust would undermine the socio-economical profit sharing. In other words interest is a fee on fear, except the one who fears actually collects the fee, just like insurance, only the other way round. Enough said of the moral toll of debt and the defunct reverse accounting. What's clear is that interest, being a mere projection is inherently subjective and truly belongs in the realms of wishful-thinking. Constructive metrics, instead, are based on arrears and the real-time.

2. Interest is resource hungry.

Consider that interest consists of two parts: time-value for money (aka the dubious risk-free rate) and the risk portion (i.e. how risky is the borrower in the eyes of a lender). In a semi-closed system (where most resources are limited except for few) the time-value generally makes sense cause it represents the natural profit obtained by the borrower in the time period, or you can say a profit not earned by the lender should the asset have remained in his/her possession. Peculiarly though, in a hypothetical closed system profit or surplus is not at all possible and only an aggregate replacement can be achieved at best. Under such circumstances neither the time-value nor the risk portion will have any grounds. As some commentators suggest, interest represents the 'offsprings' in original sense of, perhaps, a borrower obtaining livestock and returning back with the offsprings. Still, this is vague since we don't know how many offsprings are required back and what happens if no offsprings. Yet, this gives us a decent idea about the time-value as a measure of 'average', and thus a likely expected productivity of an associated asset in a given time. In the very same system (we'll consider the semi-closed system for sanity sake) the risk portion would represent the requirement to deliver more than 'average' productivity. Where would this portion come from in the recourse constrained system, is my question? Yet it has to come from somewhere, be it theft, robbery or cost cutting (starvation?) if no expansion is available. No wonder the defaulted borrowers were often deemed criminals. Logically though, the lender is the one at fault by charging above normal in the constrained environment, yet moral accounting positions things otherwise. So the expansion has to always compensate for this undue strain, and there ain't many ways to expand that we know of: exploitation of labour and natural resources, war, currency wars – all the usual suspects. New technology may provide a temporary boost to growth, but this doesn't change the overall mechanism. Therefore we say that interest is resource hungry.

3. Interest is counterproductive and is a poor conduit of commerce.

To make it simple: conglomerates only exist because of access to cheap capital. It has been pointed out numerously that little to no economical substance exists in combining the unrelated businesses, yet the reality proves otherwise and the reality is hinged on disproportional effect of preferential interest rates. How would you call someone quoting different interest rates to different people? A financier. How would you call a car hire agent quoting different hire fees to different customers? A crook! The result is disastrous: access to capital not skill or expertise dictates the undertaking of particular projects. The tendency feeds the vicious cycle of overcapacity where lower rates lead to over-investment at high prices and rising rates, the subsequent supply glut and lower prices with the resulting period of underfunding and lower rates. Skill shortages across industries or nation-wide unemployment, trade wars have their roots in this same artificial overcapacity. Commodity cycles too are feeding of this credit cycle, which acts as propeller causing this turbulence and powered of the interest – a two-stroke motor fueled by the constant fear of collapse and oiled by the pseudo-scientific mixture of archaic tradition and extrapolated probabilities. The commodity cycle is the most obvious because it is close to our mouth, so to say, it is the resources of everyday need. Property, other asset classes undergo similar cycles, yet stipulated by the periodicity of actual use case.

The old rusted engine of interest is deafening, even sentimental to our ears as we are so accustomed to the whizz of its credit propeller. No, I'll have the jet engine of immediate settlement which offers much better consistent thrust and an uncompromised speed. To travel the horizons infinite, we must set our time scales to real-time. Transition is inevitable.